Contours Of Crunch

There are several points of confluence between financial markets and the real economy. Asset price volatility can produce negative effects on confidence, of course, forcing economic agents to reconsider their own business activities. More than that, in the gigantic bond market, in particular, a turn in pricing regimes is often accompanied by the dreaded credit crunch. That’s when it starts to get serious.

In the summer of 2007, even before everything really started to go south, you could tell there was a pretty serious economic setback looming when debt deals were pulled having nothing whatsoever to do with the mortgage or housing business. It would have been one thing had it been limited to subprime mortgage firms.

GM, for example, proposed selling its Allison Transmission unit to a pair of private equity firms, Carlyle being one. The deal had been announced in late June expected to close by mid-July before being pulled off the market when GM’s partners couldn’t easily arrange the debt financing they were counting on and expected. The deal eventually closed…on August 7, 2007.

Others weren’t so lucky especially after August 9. From then on, the term credit crunch would become an understatement. This process has been repeated in the several financial redo’s redone since. None has as yet pushed the US economy into a declared recession, though it was close in late 2015, but credit damage isn’t limited to domestic conditions.

In late 2018, we are at least starting to hear the same faint echoes:

While the party isn’t quite over, financial jitters around the world have made lenders and investors less willing to give loans to heavily indebted companies. Loan offerings are being pulled and lenders are demanding — and getting — sweeter terms. JPMorgan Chase & Co. on Tuesday had to slash the price on a $210 million loan to 93 cents on the dollar from around 100 to help finance a private jet takeover. In Europe, three loans were scrapped over the last two weeks, victims of the Brexit tensions gripping the U.K.

1 2 3
View single page >> |

Disclaimer: All data and information provided on this site is strictly the author’s opinion and does not constitute any financial, legal or other type of advice. GradMoney, nor Jennifer N. ...

How did you like this article? Let us know so we can better customize your reading experience. Users' ratings are only visible to themselves.


Leave a comment to automatically be entered into our contest to win a free Echo Show.